IRS Form 706 (Schedule E) – When navigating the complexities of estate taxes, IRS Form 706 plays a crucial role for estates exceeding certain thresholds. Specifically, Schedule E of Form 706 is dedicated to jointly owned property, ensuring that the decedent’s interest in such assets is properly reported and valued for estate tax purposes. This article provides a comprehensive overview of IRS Form 706 Schedule E, including when to use it, how to complete it, and key rules for inclusion. Whether you’re an executor, tax professional, or beneficiary, understanding jointly owned property in estate taxes can help avoid costly errors and ensure compliance.
What Is IRS Form 706 and Why Is Schedule E Important?
IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, is required for estates of U.S. citizens or residents where the gross estate, plus adjusted taxable gifts, exceeds the basic exclusion amount. For decedents dying in 2025, this threshold is $13,990,000. The form calculates the estate tax under Internal Revenue Code Chapter 11 and any generation-skipping transfer tax under Chapter 13.
Schedule E focuses on jointly owned property, which must be reported if the decedent held any interest in assets as a joint tenant with right of survivorship or tenant by the entirety. This includes real estate, bank accounts, stocks, bonds, or even partnership interests held jointly. Even if the property isn’t fully includible in the gross estate, Schedule E must be attached to Form 706 if such assets exist. Failing to report jointly owned property correctly can lead to underpayment of estate taxes or IRS audits.
Key point: Schedule E helps determine the includible portion of these assets in the gross estate, which directly impacts the taxable estate value entered on Form 706’s recapitulation section.
When Do You Need to File Schedule E for Jointly Owned Property?
You must complete and attach Schedule E to Form 706 if the decedent owned any joint property at the time of death, regardless of whether the interest is fully includible. This applies to:
- Joint tenancies with right of survivorship.
- Tenancies by the entirety (common for married couples).
- Similar arrangements, such as survivorship interests in trusts or life insurance/annuities payable to joint owners.
Exceptions include:
- Tenancies in common (report on Schedule A for real estate or other relevant schedules for personal property).
- Community property held with a spouse (report on Schedules A through I).
- Solely owned partnership interests (report on Schedule F).
If no jointly owned property exists, you may enter zero on the schedule but still attach it if required by other form questions, such as a “Yes” response to Part IV, line 10 of Form 706. For estates filed solely for portability of the deceased spousal unused exclusion (DSUE) amount, special estimation rules may apply under Regulations section 20.2010-2(a)(7)(ii), allowing you to report totals without detailed values.
Types of Jointly Owned Property Reported on Schedule E
Jointly owned property encompasses various assets where the decedent shared ownership. Common examples include:
- Real Estate: Homes or land held as joint tenants or tenants by the entirety.
- Financial Accounts: Bank accounts, CDs, or investment accounts with survivorship rights.
- Securities: Stocks and bonds (described using Schedule B rules, including CUSIP numbers).
- Personal Property: Vehicles, jewelry, or other tangibles.
- Business Interests: Jointly owned partnerships (report the interest itself on Schedule E if jointly held).
For each item, include the full fair market value (FMV) at the date of death or alternate valuation date if elected, along with any accrued income like interest or rent. Property without survivorship rights, such as tenants in common, is not reported here to avoid double-counting.
How to Complete Part I: Qualified Joint Interests?
Part I of Schedule E is for qualified joint interests under section 2040(b)(2), which apply when the property is held solely by the decedent and their surviving spouse as joint tenants with right of survivorship or tenants by the entirety.
- Item Number (i): Assign sequential numbers starting from 1.
- Description (ii): Provide detailed descriptions, similar to other schedules (e.g., for real estate, include address and ownership type). Note status like “Distributed,” “Sold,” or “Not disposed of within 6 months after death.”
- CUSIP or EIN (iii): Enter for securities or entities like trusts/partnerships.
- Alternate Valuation Date (iv): If alternate valuation is elected on Form 706.
- Alternate Value (v) and Value at Date of Death (vi): Report the full FMV of the property.
Totals from Part I are halved (multiplied by 50%) to determine the includible amount in the gross estate, unless special rules apply (e.g., if the surviving spouse is not a U.S. citizen, report in Part II). If more space is needed, use Schedule W (Form 706) or additional statements.
How to Complete Part II: All Other Joint Interests?
Part II covers all non-qualified joint interests, such as those with non-spouses or where the spouse provided consideration.
- Surviving Co-Tenants (6a): List names and addresses, assigning letters (A, B, C, etc.) for reference.
- Item Number (i): Sequential.
- Description (ii): Include ownership details, cross-references to other schedules, and any dispositions.
- Gross Value (iii): Full FMV at death or alternate date.
- Name/Address of Co-Tenant (iv): Reference the letter from 6a.
- Percentage Includible (v): The decedent’s share based on contributions (e.g., 100% if survivor contributed nothing).
- Includible Alternate Value (vi) and Includible Value at Date of Death (vii): Only the decedent’s portion.
Attach evidence like deeds or appraisals if claiming less than full inclusion. Totals from Parts I and II feed into Form 706’s gross estate calculation.
Valuation Rules and Includible Portions for Jointly Owned Property
The includible value depends on ownership type and contributions:
- Spousal Joint Tenancies/Tenancies by Entirety: Generally 50% includible, but up to 100% if the decedent provided all consideration.
- Non-Spousal Joint Interests: Prorated based on the decedent’s contribution. If acquired by gift or inheritance without specified shares, divide by the number of tenants.
- Alternate Valuation: If elected, use values six months after death or at disposition if sooner. Support with evidence like court orders.
For trusts or annuities, apply actuarial tables. Always value at FMV, excluding the survivor’s interest unless applicable.
Examples of Reporting Jointly Owned Property
- Spousal Real Estate Example: A home valued at $500,000 held as tenants by the entirety, with the decedent providing all funds. Report full $500,000 in Part I, but includible amount is $250,000 (50%).
- Non-Spousal Bank Account: $100,000 joint account with a child; decedent contributed $60,000. Report in Part II with 60% includible ($60,000).
- Joint Stock Holdings: Stocks worth $200,000; decedent and sibling as joint tenants, equal contributions. Includible: 50% ($100,000).
These examples illustrate how contributions affect tax liability.
Tips for SEO and Compliance in Estate Tax Reporting
To ensure your estate tax return is accurate:
- Use official IRS resources for the latest forms and instructions.
- Consult a tax professional for complex valuations or disputes.
- Keep detailed records of contributions and appraisals for IRS review.
Properly handling IRS Form 706 Schedule E for jointly owned property not only complies with tax laws but also minimizes the estate’s tax burden. For the most current guidance, visit the IRS website or download the PDF for Schedule E at https://www.irs.gov/pub/irs-pdf/f706se.pdf. If your estate involves international elements or non-citizen spouses, additional rules may apply. Stay informed to protect your legacy effectively.